Canada housing starts cool in July, signaling slowdown

OTTAWA (Reuters) - Canadian housing starts fell in July compared with June, suggesting a long-awaited plateau in Canada’s hot homebuilding sector may have begun after years of booming construction and sales that sparked fears of a bubble.

A condominium building is seen under construction in Toronto, Ontario, Canada on February 19, 2014. REUTERS/Aaron Harris/File Photo - RTSI7FR

The pace of housing starts fell to 198,395 units in July from a revised 218,326 seasonally-adjusted annual rate in June, the national housing agency said on Tuesday, bringing construction starts closer to the pace of population growth.

The Canada Mortgage and Housing Corp has previously warned of overbuilding in some regions and economists had expected starts to fall to a 195,000-unit pace in July.

“It’s hard to see starts pushing higher than where they’ve been year to date,” said Derek Holt, head of capital markets economics at Scotiabank, forecasting starts will eventually cool toward the 150,000-unit pace he considers closer to the rate of new household formation.

While the slowing pace of homebuilding will dim one of the few bright spots in Canada’s economy and subtract from GDP growth as early as the third quarter, the surprise resilience of home construction has led to concern there could be glut of condominiums in Canada’s hottest cities.

A sharp contraction in multiple-unit starts - typically condos - last month led July’s decline, with urban multiple starts down 13.3 percent compared to a milder 1.8 percent dip in starts of single family homes.

Multiple starts had surged more than 25 percent in June. While the data is notoriously volatile from month to month, building permits have been declining and analysts believe it is only a matter of time before construction slows as well.

“Our forecast is for starts to be in the 185,000 to 190,000 range in the second half of this year, which would be more consistent with permits recently,” said Josh Nye, an economist at Royal Bank of Canada, the nation’s largest lender.

The expected fallback in housing starts was broadly based, according to the report, with groundbreakings slowing down in all regions of Canada except the Prairies.

Hot housing markets in Canada’s two largest cities, Toronto and Vancouver, have sparked some fears of a housing bubble, even as other markets cool amid a slump in commodity prices that has weighed on the country’s economic growth.

Some analysts also expect home sales to slow in Vancouver as a new tax on foreign buyers comes into effect. [L1N1AK2EV]